Stephen Bainbridge's Journal of Law, Politics, and Culture

April 2012

04/30/2012

What I’d like to suggest to all Professors is this: if you’re at a University that allows you to be visibly Catholic, take advantage of that opportunity next semester (you can’t start mid-semester; that would be weird). It doesn’t have to be anything dramatic -- part of the strength of the Contracts prayer was that it was said without any hint of the theatrical, it just set the intention for a class where few of us felt “delicate to interpret or ready to speak.” From the perspective of someone who wasn’t always Catholic, this kind of prayer isn’t confrontational or in-your-face. It’s nice.

To explore the challenges of implementing the Volcker Rule, the Penn Program on Regulation (PPR) and the law firm of Morrison & Foerster LLP recently hosted a roundtable discussion in Washington D.C. The roundtable brought together representatives from the financial industry, government, legal profession, and scholarly community for an intense discussion of the core challenges presented by the rule.

In reviewing recent California cases involving the Corporations Code, I was surprised to see several recent, published and and unpublished opinions dealing with marijuana dispensaries. I never would have imagined that California’s laws governing marijuana would require the courts to refer to the Corporations Code.

The recent U.S. government probe of insider trading at hedge fund firms is threatening to change the very meaning of insider trading. While previously only market-moving information was under the insider trading microscope, now, for the first time, the government is questioning the legality of any type of information.

In doing so, authorities are coming dangerously close to criminalizing market research itself.

Though the Securities and Exchange Commission (SEC) is the primary securities enforcer, multiple enforcers are active in enforcing the securities laws. Some scholars argue that enforcement should be centralized to eliminate or control enforcers with incentives to overenforce, while others contend that competition checks the SEC from a tendency to underenforce. The debate is characterized by a focus on whether the system produces an optimal quantity of enforcement.

This Article assesses the centralization debate through a different lens, emphasizing differences in the quality of enforcement, particularly the values that influence and are expressed by enforcement. To frame the discussion, it draws a distinction between two categories of enforcement: rule-enforcement and principle-enforcement. Rule-enforcement is less costly and controversial than principle-enforcement because specific rules tend to reflect the technical requirements of an administrative regime while general principles can reflect a wider range of values.

Enforcers differ in their approach in taking on the cost and controversy of principle-enforcement. Industry enforcers are likely to interpret principles narrowly based on industry values. Regulatory enforcers such as the SEC may find it difficult to adequately enforce principles because of the pressure of implementing consistent regulatory policy. Public-values enforcers such as federal prosecutors and state attorneys general are willing to enforce principles in light of social values but may overreach because of political ambition. Entrepreneurial enforcers such as class action attorneys are most willing to invest in principle-enforcement but also have a tendency to bring questionable cases for profit.

The choice between a centralized and decentralized enforcement system is fundamentally a choice between a one-dimensional and multidimensional conception of the values relevant to securities enforcement. Proposals to centralize securities enforcement are motivated by a desire to eliminate the conflicts that can arise between enforcement approaches that reflect different values. The cost of such centralization is that the advantages diverse enforcers bring to the table will be eliminated. This Article concludes that a decentralized system is best justified by recognizing the particular strengths of different enforcers rather than focusing on whether an optimal amount of enforcement is produced.

An alert reader passed along some helpful information on my March 29, 2012, blog, "ISS Proxy Statement: Do as I Say, Not as I Do?," pointing out that a review of the annual proxy statement filed by the parent company of ISS (MSCI, Inc) revealed an assortment of pay practices that ISS routinely criticizes, including the combined role of CEO and chairman, discretionary annual bonus determinations, long-term incentives that are heavily based on restricted stock units, and single trigger long-term incentive vesting on certain changes-in-control for awards.

ISS did not analyze MSCI, as they were conflicted. Rather, ISS retained corporate governance and proxy voting firm Manifest for the second year running to prepare the pre-meeting research for the MSCI meeting. Manifest gave MSCI's remuneration a "D" grade!

04/29/2012

In a letter to the UC Davis community, Chancellor Katehi and Provost Lavernia declared that we should work collectively “to address today’s major budget cuts, which come as a consequence of the state’s decade-long disinvestment in higher education.” I think there is a more immediate target for constructive change that would balance the UC budget.

It’s true that UC’s share of the state’s general fund has been declining (from 7.5 percent in 1967-68 to as low as 3 percent in recent years, according to the California Postsecondary Education Commission[1]), but that has been a steady trend. The more immediate reason for the current enormous increases in student fees, and for the sudden need for employee furloughs, is the startling recent growth of UC’s senior management. Data available from the UC Office of the President shows that there were 2.5 faculty members for each senior manager in the UC system in 1993. Now there are as many senior managers as faculty.[2] Just think: Each professor could have his or her personal senior manager.

Last week I blogged (here) about the possibility that the Supreme Court’s apparent increasing willingness to strike down regulation of corporate speech as contrary to the First Amendment could lead to a reconsideration of merit review as a part of our federal securities regulation regime (it is already a part of many states’ blue sky laws). The next day, Stephen Bainbridge responded: "No thanks!" (here).

04/28/2012

Since last noted in 6/2010, this Spring Mountain-sourced Cabernet Sauvignon has continued to improve with additional age. Although it still has a lot of fruit (cassis and kirsch spring to mind as apt flavor associations, as does cola), it also exhibits a growing set of maturity markers such as cedar and tobacco. Excellent match for steak frites. I like it a lot.

04/27/2012

For dinner tonight I made prawns in a white wine and tomato broth (from a recent Wine Spectator recipe). The recipe called for an unoaked Chardonnay and suggested the same as a drinking match. I'm a fan of this style, having sampled a fair number in New Zealand some years ago. Unfortunately, it's not a style that's easy to find here in the USA. But the good folks at K&L Wines set me up with this Iron Horse.

It's a lovely wine that makes a nice change from the oaky style of Chardonnay. And a great choice for this recipe, which features the sort of light broth you have to mop up with pieces of french bread. Oak would have ruined the broth and conflicted with it on the palate.

Stone fruits (white peach?) and citrus (pineapple? Meyer lemon?) dominate both the bouquet and the palate, with a touch of pear and a dash of Chablis-like minerality. Crisp. Pretty long finish or an unoaked white.

04/26/2012

Pahlmeyer's second wine is a Cabernet Sauvignon-based (76%) blend of all 5 classic Bordeaux varietals, with substantial dollops of Cabernet Franc and Merlot, and small aliquots of Petit Verdot and Malbec. Unlike a lot of second wines, which often tend to be weak sisters compared to their big brothers, this is a big, brawny, high alcohol (>15%) wine. (Think linebacker rather than wide receiver.) Deep purple. Strong legs. Not an especially intense bouquet. Instead, the palate's volume is cranked up to at least 11. Sweet blackberry and blueberry framed by savory espresso and black olive flavors. Prunes and anise, as well. It'll last a while (2020?), but it's really a wine to drink up between now and, say, 2018 while you wait for your Pahlmeyer Red 2008 to come around. Grade: A--

Today, Rep. Ryan delivered the Whittington Lecture at Georgetown University. The text is available here. Among other things, the lecture has an admirably civil and warm tone (I didn't hear the talk itself), which I confess I might have had difficulty in maintaining, in the wake of the snooty and dismissive letter he received by way of welcome from a number of Georgetown faculty. Besides the regrettably-common-but-still-simplistic identification of the current state of social-welfare programs with policies clearly mandated by a conscientious application of Catholic Social Teaching, the Georgetown letter snarkily charged that the Ryan budget proposal "appears to reflect the values of your favorite philosopher, Ayn Rand, rather than the Gospel of Jesus Christ. Her call to selfishness and her antagonism toward religion are antithetical to the Gospel values of compassion and love.” Ryan has made clear that his alleged devotion to Rand is an "urban legend", and elaborated:

“I reject her philosophy,” Ryan says firmly. “It’s an atheist philosophy. It reduces human interactions down to mere contracts and it is antithetical to my worldview. If somebody is going to try to paste a person’s view on epistemology to me, then give me Thomas Aquinas,” who believed that man needs divine help in the pursuit of knowledge. “Don’t give me Ayn Rand,” he says. [RG: Nor me!]